Growth & Jobs | Consider auto-enrolment to ease Jamaica’s pension issues – Reid

Hugh Reid, general manager, JN Life Insurance, has urged employers who do not have a superannuation fund to consider auto-enrolment of their employees in a pension scheme to improve their workers’ retirement outcomes and avert a pension crisis.

The Pension Industry Association of Jamaica’s (PIAJ) (2022) ‘Concept Paper on Auto-Enrolment’ notes that the number of elderly persons in Jamaica is expected to grow to about 500,000 by 2030 and is projected to be approximately 22 per cent of the total population by 2050. It adds that the number of people who are 80 and over are projected to increase 2.5 times, from 48,029 in 2010 to 117,149 by 2050.

The PIAJ states that simply encouraging people to save for their retirement has not been enough. Therefore, automatic enrolment should be considered.

“Automatic enrolment is when an employee who meets certain requirements is made a member of a workplace pension scheme without needing to ask to be part of it,” said Reid. “Auto-enrolment ensures that savings occurs alongside the pay cheque, and significantly simplifies the process for identifying and starting a retirement savings account. At the same time, the opt-out option maintains individual choice and responsibility for the decision to participate in the plan.”

“If employers considered auto-enrolment, it would definitely go some way in protecting those who will be financially vulnerable in retirement, especially those from lower socio-economic backgrounds. It will also reduce the burden on the State because, as we know, the monthly payment from the National Insurance Scheme is not enough to provide for someone in their golden years and ultimately, the State and taxpayers will be called on to fill any gaps. Therefore, we need to have a serious conversation about retirement planning,” he added.

Reid pointed out that auto-enrolment was not a new concept and has been adopted by several governments, including Australia, which launched its programme in 1992. Israel introduced legislation in 2007, and more recently the United Kingdom implemented auto-enrolment provisions in 2012.

“In each of these countries, employers, employees, or both, are required to make retirement contributions. The level of contributions vary from relatively low levels to those which are intended to provide a meaningful retirement fund. For example, contributions in Australia have risen from an initial rate of three per cent and are expected to rise to a target level of 12 per cent by 2025. In Israel, the initial rate increased from 1.67 per cent to today’s level of contributions of 12.5 per cent, with the employer contributing 6.5 per cent and the employee providing the other six per cent,” he explained.

The Pension Industry Association of Jamaica’s (2022) ‘Concept Paper on Auto-Enrolment’ also notes that for the proposed scheme, employers would not be required to contribute, but will be required to undertake the necessary steps to ensure employees are enrolled, and salary deductions paid to the applicable approved retirement scheme.

“Employees who are already part of an approved retirement scheme (ARS) on or before the commencement of the auto-enrolment programme will not be required to be auto-enrolled, but would be required to provide proof of current participation in the ARS,” the concept paper stated.

The PIAJ indicates that high levels of participation tend to result not only from automatic enrolment, but also from the practice of requiring each eligible employee to decide explicitly whether to opt out. It added that a national auto-enrolment programme aligns with the Government’s National Financial Inclusion Strategy to create conditions in which Jamaicans, particularly those who are underserved by the domestic financial system, can save safely and build up resilience against financial shocks.

Reid explained that auto-enrolment also has benefits for the employer and employees.

“Auto-enrolment has advantages because workers will be vested from enrolment, meaning, employees will automatically have 100 per cent ownership of their contribution upon becoming a part of the scheme. Also, they will start saving for retirement immediately and be able to eliminate the stress of thinking about retirement. They also have the option of transferring to another retirement scheme/pension fund the full amount of the funds accumulated when changing jobs,” he said.

“The employer will also benefit, because it will result in greater employee participation in pension schemes; and because onboarding will be simplified, the administrative work will be less cumbersome. Therefore, I believe auto-enrolment should be considered as a way to mitigate our looming pension crisis,” he added.